This is the former blogging site for Next Century Foundation articles on Iraq. We have migrated to a new website and blogging platform, and can now be found at:
https://nextcenturyfoundation.wordpress.com/category/iraq/

Monday, July 12, 2010

Iraq: A Petro-State Once More

Events in modern Iraq have always been inevitably linked to the nation’s vast oil endowments. As early as 1920, under the guise of the League of Nations Britain brought together the Ottoman provinces of Basra, Baghdad and Mosul in order to better exploit the holdings of the Turkish Petroleum Company. Later, the Ba’ath Party nationalized the Iraqi Petroleum Company arousing the hostility of the British and United States. And under Saddam Hussein these vast oil revenues were used to enrich the Sunni minority (particularly Saddam’s own Tikriti clan, indeed so much power and wealth was amassed by the Tikriti’s that Saddam was moved to pass a law in 1972 banning the use of surnames in Iraq in order to mask this reality), which had the effect of marginalizing the Shiite majority and reigniting a destabilizing sectarian rift. And these are but a few examples of how Iraq’s modern history has been governed by oil.

So what is the state of the oil industry in Iraq today? There is undoubtedly a consensus that Iraq is one the great hydrocarbon preserves in world. An array of expert testimony alludes to this, with Iraq having at least 115 million barrels of proven crude oil reserves. Iraq has the second-largest endowment of oil, amounting to approximately 11 per cent of the global total. Unsurprisingly, due the chronic instability which Iraq has experienced only 17 of 80 oil fields have been developed. All of this then points to huge potential revenues that perhaps could assist the reconstruction of Iraq’s infrastructure. Yet in the aftermath of the US-led invasion in 2003, daily oil production plummeted. Indeed, in Kirkuk (the ownership of which has been bitterly disputed) around 200,000 to 300,000 barrels of oil per day were being re-injected into because of local refining and transport constraints. Recent signs, however, are more encouraging. In 2008, the US Department of Energy reported that Iraq’s crude oil production under the control of state-owned oil companies averaged 2.4 million barrels per day (still below its pre-war production capacity level of 2.9 million barrels per day in 2003) and it is expected this year that for the first time subsequent to the invasion, Iraq will exceed its pre-war levels.

By all accounts the current Oil Minister, Hussain al-Shahristani (jailed by Saddam Hussein for refusing to assist in the development of nuclear weapons) has been beneficial for the re-development of Iraq’s oil industry. Shahristani has been successful in persuading Nuri al-Maliki to allow foreign firms to participate in the development of Iraq oil fields, despite opposition from many quarters. This was manifested dramatically in 2008 with a $3.5 billion dollar 20-year service contract agreement between Iraq’s state-owned North Oil Company and the Chinese National Petroleum Corporation to develop the Adhab oil field in the Wasit province. Iraq clearly faces many obstacles on its way to reasserting itself as a major oil state (the status of Kirkuk offers a cautionary tale). For the world though, exploiting Iraq’s oil reserves is a way of postponing the inescapable scenario of peak oil. Consequently, all major foreign powers have an interest in facilitating Iraq’s reemergence as a major oil producer. If they succeed in circumventing the numerous obstacles the conclusion is likely to be slightly depressing. The only viable vision of Iraq after all the destruction seems to be that of an oil-fuelled petro-state with no other function other than that of enriching local technocratic and bureaucratic elites. Just as in 2003 when American tanks protected no part of Baghdad other than the Oil Ministry (as well the Ministry of the Interior with its thousands of intelligence files) it seems that the value of Iraq to the wider world has been reduced down its vast oil reserves.